Feedback ASAP Proprietary Limited v Big Ears Limited
[2023] NZHC 2311
•24 August 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-447
[2023] NZHC 2311
BETWEEN FEEDBACK ASAP PROPRIETARY LIMITED
Applicant
AND
BIG EARS LIMITED
Respondent
Hearing: 23 August 2023 Appearances:
F E Geiringer for Applicant G Arthur KC for Respondent
Judgment:
24 August 2023
JUDGMENT OF COOKE J
(Interim injunction)
[1] By application dated 18 August 2023 the applicant, Feedback ASAP Proprietary Limited (Feedback) seeks a pre-commencement injunction without notice.
[2] The application relates to services provided by the respondent, Big Ears Limited (Big Ears) to Feedback under long standing contractual arrangements. Feedback is based in Australia, and Big Ears is based in New Zealand. Feedback provides customer survey services to its clients, and Big Ears provides Feedback with computer software services to deliver the customer survey services. The services are primarily provided in relation to consumers of Feedback’s clients in Australia and New Zealand.
[3] The application was first considered by Grice J on 18 August who initially indicated that the Court would not grant interim orders without Big Ears being given an opportunity to be heard. She set down the matter for a telephone conference on
FEEDBACK ASAP PROPRIETARY LIMITED v BIG EARS LIMITED [2023] NZHC 2311 [24 August 2023]
Monday 21 August before me and directed service. A further memorandum from counsel for Feedback was then filed in which counsel advised that Big Ears had withdrawn its provision of services in a manner that caused prejudice to Feedback. Grice J then made interim orders pending the telephone conference. There is a dispute as to what those interim orders required. But in any event, Big Ears instructed counsel over the weekend and before the conference before me on Monday 21 August. Following a telephone conference that afternoon I set down the matter to be heard before me yesterday morning, extending the interim orders until that time. At the end of that hearing I then extended the interim orders until delivery of this judgment.
[4] A number of affidavits have been filed. Feedback’s Managing Director, Philip Prosser filed an affidavit with the initial application. He has since filed two further affidavits. Eric Forsyth, the Managing Director of Big Ears, has also filed two affidavits. Mr Prosser’s final affidavit and a further affidavit of Karen Downes of Feedback were filed on Tuesday evening. Mr Arthur KC objected to this late evidence on the basis that Big Ears had had no opportunity to respond, and because Ms Downes’ affidavit included information exchanged on a “without prejudice” basis. I received the evidence noting these objections.
Background
[5] The services provided by Big Ears to Feedback were initially performed under a written agreement commencing 5 September 2010 for a five year period (the Original Contract). There was no right to terminate that agreement other than for cause. At the end of that contractual period in 2015 there were negotiations between the parties about a new agreement, but no new written agreement appears to have been reached albeit that Big Ears contends that a further five year period was agreed upon.
[6] In any event services under the Original Contract ended in either 2015 or 2020. The parties continued to provide services at the end of that further period, however. That was so until Big Ears gave notice to Feedback on 21 July 2023 that it was terminating “our contract with you” on Tuesday 25 July 2023, four days later. There were then some urgent negotiations between the parties and a Transition Agreement was entered into on 25 July 2023 (the Transition Agreement). The purpose of the
agreement was stated to provide a “means for continuity of service to the customers of Feedback … while the parties plan and execute a transition in the provision of services to Feedback … and its customers”. This altered the consideration being provided by Feedback to Big Ears under the contract so that there was a payment of A$1,300 per calendar day, and block payments of A$3,600 for 20 hours work, rather than the fees that had previously been billed. There was a term of the Transition Agreement that it could be terminated by either party with three days’ notice. Feedback says it entered this agreement under duress.
[7] On 17 August Big Ears then gave Feedback a three days’ notice of termination of the Transition Agreement. It is this that has led to the application for an interim injunction.
Test for interim injunction
[8] Under r 7.53 of the High Court Rules 2016 the Court may grant an interim injunction before or after the commencement of the hearing of any proceeding. The approach under this rule was summarised by the Court of Appeal in Commerce Commission v Viagogo:1
General principles governing grant of interim injunctions
The principles that govern the grant of interim injunctions under r 7.53 and the court’s inherent jurisdiction are well settled. The court will usually adopt a two-stage approach.2 The first inquiry is whether there is a serious question to be tried. If that threshold is met, the court moves on to consider whether the balance of convenience favours granting or refusing relief. But as this Court observed in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, considerations are marshalled under these (non-exhaustive) heads as “an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question.”3
As Lord Hoffmann said in delivering the advice of the Privy Council in
National Commercial Bank Jamaica Ltd v Olint Corp Ltd:4
The purpose of such an injunction is to improve the chances of the court being able to do justice after a determination of the merits at the trial. …
1 Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [30]–[31].
2 See American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL).
3 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 142.
4 National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16, [2009] 1 WLR 1405 at [16] and [17].
The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other.
Serious question to be tried
[9] Mr Geiringer advanced a number of creative arguments for contending that there was a serious issue to be tried, including that there was an implied contractual term of good faith, that the Transition Agreement was induced by assurances, and that the conduct of Big Ears was unconscionable. I do not address those arguments, but I doubt whether they raise a serious issue to be tried.
[10] I accept, however, that there is a serious issue to be tried that Big Ears has acted in breach of contract by terminating a long term agreement between the parties without giving reasonable notice.
[11] The parties continued their commercial activities beyond the period of the Original Contract. The services had been provided for approximately 13 years. In those circumstances Feedback can strongly argue that a new contract existed between them arising by way of implication from their continuing activities after the period of the Original Contract (the Implied Agreement). The starting point for identifying the terms and conditions of the Implied Agreement would likely be the terms of the Original Contract as these regulated the parties’ previous contractual dealings. But those terms may also depend on the implications arising from their further dealings.
[12] One of the matters that the parties did not expressly agree upon in the Implied Agreement was the respective rights of termination. When parties to an agreement have not agreed on such terms, these can be held to be implied. The position was summarised by the Supreme Court in Paper Reclaim Ltd v Aotearoa International Ltd.5 In that case the Court agreed with the New South Wales Court of Appeal’s summation of the purpose of a reasonable notice period in Crawford Fitting Co v Sydney Valve & Fittings Pty Limited in the following terms:6
The chief purpose of a notice for a reasonable period, therefore, is to enable the parties to bring to an end in an orderly way a relationship which, ex
5 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169.
6 At [10] citing Crawford Fitting Co v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 at 453.
hypothesi, has existed for a reasonable period so that they will have a reasonable opportunity to enter into alternative arrangements and to wind up matters which arise out of their relationship. Matters to be wound up will include carrying out existing commitments, bringing current negotiations to fruition, and, where appropriate, obtaining the fruits of any extraordinary expenditure or effort carried out within the scope of the agreement. The line between ordinary recurrent expenditure and effort and extraordinary expenditure and effort will not always be easy to draw. But in general it will be determined by what the parties would reasonably have contemplated was extraordinary effort or expenditure.
[13] Mr Prosser gave evidence that the immediate cessation of services by Big Ears significantly harmed Feedback’s business, and its ability to provide services to its customers. That would be because it would be unable to provide its service. This would lead to a threat to the viability of Feedback, and put jobs at jeopardy. I did not understand this to be seriously disputed by Mr Forsyth in his evidence.
[14] Further Mr Prosser explained that to transition to a new provider of services, Feedback needed time through to October this year. He explained that the software services provided by Big Ears were not “off the shelf” but involved bespoke software services which needed to be developed with a new supplier. Again I did not understand Mr Forsyth to seriously dispute this evidence.
[15] For these reasons there is a serious question to be tried that Big Ears has breached its obligation to give Feedback reasonable notice of the termination of the Implied Agreement which, on the basis of the affidavit evidence so far filed, would likely be three months’ notice. By giving Feedback only four days’ notice on 21 July 2023 Big Ears was arguably acting in breach of contract. Mr Arthur for Big Ears did not advance an argument to refute this line of analysis.
[16] A complication arises because, in the context of the notice Big Ears had given, the parties entered the Transition Agreement. Mr Arthur relied on the fact that this had an express termination provision which was exercised by Big Ears on 17 August by giving the required three days’ notice. I do not consider, however, that this further agreement means that there is not a serious issue to be tried. The Transition Agreement does not purport to cancel any previous agreements between the parties, and the Implied Agreement may still have existed, including the term requiring reasonable notice to be given. The Transition Agreement does not have a term saying that all
previous contracts between the parties are revoked. Big Ears also then cancelled the Transition Agreement. This agreement can be considered to be no more than one that sought to regulate the required transition period without success which was then terminated. I consider that Feedback is still entitled to contend that Big Ears was in breach of a term that the services under the Implied Agreement would only be brought to an end by three months’ notice.
[17] I also note Mr Geiringer’s argument that the Transition Agreement was induced by economic duress. That may also be arguable. But in any event the terms of the Transition Agreement do not eliminate the serious issue to be tried, and Big Ears has also cancelled this agreement.
[18]For these reasons I consider there is a serious question to be tried.
Balance of convenience and overall justice
[19] I next consider the question of balance of convenience in light of the overall justice of the case.7
[20] The above circumstances would suggest a reasonably straightforward case for the grant of an interim injunction. I consider that Feedback has a strong argument that a three month notice period was required, and that Big Ears breached that requirement by giving only four days’ notice. There is no real dispute about the consequences for Feedback. They were placed in a very difficult position concerning business continuity as there was no transition period. The whole point of an implied term of reasonable notice is that the parties are able to bring an orderly end to their business arrangements when these have existed for some time. The present contractual arrangements between the parties existed for 13 years, and the evidence is undisputed that Feedback needs an appropriate period of time to organise itself with new suppliers. There is no real dispute about the three month period on the evidence currently filed.
7 Commerce Commission v Viagogo, above n 1.
[21] Two matters were raised by Big Ears, however, that warrant further consideration.
[22] The first is that, in more recent times, the services being provided by Big Ears have been different from those described in the Original Contract. In particular, new computer based services have been developed to provide the services in an enhanced way. They have involved providing services using the following four elements:
(a)A File Transfer Protocol, or FTP. Rather than Feedback seeking a request for information from Big Ears by way of “tickets”, an automated FTP process has been used.
(b)A system called Comms Manager, involving a type of access that Feedback has been able to have to Big Ears’ computer systems. This allows direct access to the Big Ears computer system rather than generating and responding to ticket requests.
(c)Google Docs — which involves specifications leading to the generation of documentation using this Google application.
(d)The Quicksight system, a more recent development which allows easier access by Feedback to the information generated by the Big Ears systems.
[23] Big Ears argued that these elements of the service were not contracted services. Rather they were being provided voluntarily by Big Ears as enhanced services. It points out that these are not specified in the Original Contract as part of the services contracted for.
[24] I do not see much merit in this aspect of Big Ears’ argument. When parties continue contractual arrangements after the end of a fixed term contract the terms of their agreement are implied. If the services being provided are adapted during this further period of time then it is the adapted service that becomes the contracted service. I accept Mr Arthur’s point that the consideration paid has not changed, but the manner
in which the services have been delivered has. The enhanced service became part of the services for which Feedback was paying. Big Ears offered it as a way of keeping Feedback happy with the service. It is likely those services that Big Ears had to give reasonable notice of its intention to terminate.
[25] There is much more force in Big Ears’ further argument. Big Ears claims that Feedback’s access to these enhanced services, and to its computer system, are now being used for an illegitimate purpose of copying its intellectual property. Mr Forsyth put in evidence information that shows that after it had given its notice of termination on 21 July 2023 Feedback has accessed and downloaded information from Big Ears’ systems involving much more significant quantities of data, by people who would not normally access that data, and not for the ordinary course of business. Big Ears alleges that Feedback is using this information to supply it to third parties who are developing the alternative service that Feedback now requires. Big Ears alleges that this involves a breach of its intellectual property in its software systems.
[26] In response Feedback says that it is not downloading data from Big Ears’ systems to gain access to Big Ears’ intellectual property. Rather it is downloading data concerning Feedback’s clients, and the consumers who have been surveyed. It says that it needs the data of these clients and consumers to input into the new systems that it needs to develop because Big Ears is withdrawing its services. In other words the information that it is accessing is not Big Ears’ intellectual property but Feedback’s client information.
[27] I note that it is not alleged by Big Ears that Feedback has been accessing and downloading the underlying code that is used within Big Ears’ systems. Rather it is alleged that it is downloading the results of the application of Big Ears’ software which configures and presents the client/consumer information. I understand this to be presented in the form of spreadsheets. Mr Geiringer accepted, however, that within this information there may be lines of script that reveal Big Ears computer coding in some instances.
[28] Against that background Big Ears has offered an undertaking to continue to provide services through to October, but not including the enhanced services described
above, but reverting to the old “ticket” system that has previously been used. In short, this involves Feedback making a request for data from Big Ears, and Big Ears responding to that request.
[29] I consider this issue to be reasonably finely balanced. I accept that Feedback has likely been accessing Big Ears’ system for reasons beyond the normal business operations in order to download much more significant amounts of information. Whether that involves downloading any of Big Ears’ intellectual property is hard to determine at this interim injunction stage.
[30] What I am required to do is take the course that seems likely to cause the least irremediable prejudice to one party or the other.8 In the end I have decided that it is not appropriate to condition any interim injunction in a way that eliminates provision of the services by way of the enhanced features during the reasonable notice period. That is because of the following considerations:
(a)First, this downloading by Feedback only occurred after Big Ears gave the three days’ notice of termination which put Feedback in a difficult position. It may well be that all that Feedback was doing was trying to retrieve as much customer information as it could in the limited period given the predicament it was in. Accessing client information may well be necessary as part of the transition. To the extent that this has involved Feedback having access to Big Ears’ intellectual property this may be at least partially attributable to Big Ears’ approach.
(b)To the extent that Feedback may have breached Big Ears’ intellectual property rights by what has happened since that date, it seems to me that the horse may largely have bolted. Big Ears is concerned that Feedback would want to access further information that may involve its intellectual property. But if the intellectual property can be copied from the presentation of client data, then the way in which the system so presents the data will have been apparent from what has already been accessed. Obtaining further copies of that presentation for other clients
8 Commerce Commission v Viagogo, above n 1.
is unlikely to involve a further significant infringement of intellectual property rights.
(c)Further, to the extent that Big Ears’ intellectual property rights have been infringed it will have remedies. In particular, Feedback has given an undertaking as to damages. If there has been any infringement of the intellectual property rights this undertaking can be called upon. Feedback also gave an undertaking that it submitted to the jurisdiction of the New Zealand Court for the purposes of any proceedings in relation to alleged intellectual property breaches. So Big Ears has a remedy for this infringement. I accept Mr Arthur’s point that the damages may not be easy to quantify, but the remedy still exists.
(d)Reverting to the previous “ticket” system will make the transition period more difficult, and the whole point of a reasonable notice period is to allow an orderly transition. The client information might still be obtainable by Feedback from Big Ears through the ticket system, but could operate as an impediment to the smooth transition required for the ending of a long term contract of this type.
[31] Big Ears alternatively proposed conditions of the injunction that restricted Feedback’s access to its system to particular employees, by providing access to information in particular ways. On balance I am not inclined to make that order as I am unclear on the extent to which this would interfere with the smooth transition, including the ability to access client information, and whether there is a risk to Big Ears’ intellectual property.
[32] None of the above findings should be taken by Feedback to be conclusions that Big Ears’ intellectual property is not being infringed. As I say, I am not in a position to reach a conclusion on that question. If Big Ears’ intellectual property has been, or will be infringed by the continuing services contemplated by the interim injunction referred to below then the Court will not hesitate to call upon the undertaking as to damages, or to grant some other form of relief.
[33] I also note that Feedback is prepared to pay for the services during the period of the interim injunction at the cost of the services that Big Ears sought in the Transition Agreement, which is higher than the cost of the services provided under the Original Contract and thereafter.
[34] There was also an argument on the minimum requirements that each party would commit to under the terms of any interim injunction. Feedback contended that Big Ears should commit to providing up to 20 hours services per week, and that it would commit to ordering no less than 10 hours services per week. Big Ears argued that these terms would be unequal, but given that the point of the interim injunction is to put in place a transition period, where Big Ears services are being phased out, I do not see them as inappropriate.
[35] There were other factors mentioned in argument, but none of them influence my conclusions on whether an interim injunction should be granted. I note in particular the references made to this being a mandatory injunction, but as the Court of Appeal observed in Commerce Commission v Viagogo the arguments about injunctions being prohibitive or mandatory are barren and what really matters is the practical consequences of the proposed injunction.9
Conclusion
[36] For the above reasons I consider that an interim injunction should be granted. During the course of the hearing I also received detailed submissions on the form of any orders in light of what each side was prepared to offer by way of undertaking. In light of those matters I grant an injunction in the following terms:
(a)That Big Ears must not withdraw the services provided to Feedback before 5 pm Monday 15 October 2023 unless services are disrupted due to matters beyond its reasonable control.
(b)For the avoidance of doubt those services shall include the services described as enhanced services.
9 At [90].
(c)That Big Ears provide those services for up to 20 hours per week.
(d)That Feedback shall require, and pay for, a minimum of 10 hours services per week.
(e)That the consideration to be paid for those services will involve a single fixed fee of A$1,300 per calendar day (billed daily by automatic payment), and pre-purchase blocks of 20 hours of professional services at A$3,600 per block.
(f)That Feedback shall file and serve its statement of claim in these proceedings within 15 working days.
(g)That leave be reserved to both parties to apply to vary these orders.
[37] In relation to costs Feedback may file and serve a memorandum within five working days (no more than five pages plus attachments) to be responded to by Big Ears within five working days (no more than five pages plus attachments).
Cooke J
Solicitors:
Kapadia & Gordon Lawyers, Melbourne, Victoria for the Applicant Brandons Lawyers, Wellington for the Respondent
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